Swan to unveil surplus pain

Treasurer Wayne Swan will reveal the mid-year economic forecast tomorrow, but his promise of a surplus is worrying economists.

Transcript

TICKY FULLERTON, PRESENTER: Europe's crisis may have seriously dented global confidence around the world, but the Government's hopes of a surplus next year remain intact. Treasurer Wayne Swan will unveil his mid-year economic forecast tomorrow and they're expected to show the damage done by natural disasters at home and financial turmoil abroad. His promise to deliver a surplus is worrying economists.

Here's Phillip Laskar.

PHILLIP LASKAR, REPORTER: 10 economists might normally get you 20 opinions, but not when it comes to the Government's steadfast commitment to deliver a surplus next year.

CHRIS RICHARDSON, DELOITTE ACCESS ECONOMICS: I don't think searching for a surplus next year to be the right thing to do. Right now things are fragile. Europe is bad and it's getting worse.

ROB HENDERSON, MARKETS ECONOMIST, NAB: It's clear there are risks to our economic outlook. Substantial parts of the Australian economy are soft. I'm thinking for example of the retail sector, the manufacturing sector, the tourism sector. All of those sectors are really hurting at the moment. So, if they tighten fiscal policy, it'll only make things worse.

PHILLIP LASKAR: But it seems the Government will press on, despite the fact that that weakness and the loss of revenue will see this year's deficit blow out from under $23 billion predicted in May to around $30 billion. And if the surplus promise remains intact for 2012-'13, the Government will have to tighten its purse strings to the tune of $7 billion, or half a per cent of GDP.

CHRIS RICHARDSON: The risk is that that damages the economy at a time when we could do without that.

PHILLIP LASKAR: And what does Treasury think about those sentiments?

DAVID GRUEN, TREASURY OFFICIAL (Nov. 24): I'm hoping to have a job tomorrow.

PHILLIP LASKAR: Respected Treasury official David Gruen argued last week that this government, like other governments, was simply aiming to balance the books over the economic cycle.

DAVID GRUEN (Nov. 24): But the idea that as the Global Financial Crisis subsided the Government started the work of bringing the budget back to surplus and regarded that as an important goal strikes me as a reasonable thing to argue.

ROB HENDERSON: The old idea that Costello and Howard had which was supported by Labor at the time of balancing the budget over the course of the cycle is the appropriate policy. You shouldn't have to necessarily keep the budget in surplus when the economy's running or slowing down and looks like running slower towards a recession.